chapter 2.1 Flashcards
(16 cards)
What is GDP? (gross domestic product)
the market value of all final goods and services produced in a country (domestic production) in a given time period (even if not consumed in the corresponding period)
- it doesn’t include goods consumed in the corresponding period, if the production was done in previous periods
Why in GDP we use the market value?
to determine how much each good or service is worth
In GDP we exclude intermediate goods. Why?
- intermediate goods → sold to firms and then bundled or processed with other goods or services for sale at a later stage.
- finished goods → sold to final users and then consumed or held in personal inventories
To avoid double counting
What is GNP?
gross national product → measures what is produced by the labour and property supplied by permanent residents, even if produced abroad
What are the different approaches to calculate the GDP?
- production
- income
- expenditure
what does government consumption includes and doesn’t include?
- includes purchases of goods and services by the government
- includes wages of civil servants - to measure production of publicly-provided services
- does NOT include tranfers from government to other agents
In GDP and nationa accounts why include exports and exclude imports?
include exports
- Exports → goods and services produced in the country but sold to the rest of the world
- since these goods were purchased by foreigners, its value does not show up in C, G or I
exclude imports
- imports → goods and services purchased from the rest of the world. Sould not be included, because there goods are produced abroad
- since these goods were purchased by residents,its value already shows up in C, G or I
Need to add exports and subtract imports.
What is net product?
- is gross product after deducting depreciation of capital
NDP = GDP - Depreciation
what is gross investment?
total amount spent on purchases of new capital and on replacing depreciated capital
what is net investment?
increase in the value of the firm’s capital
What are the alternative ways of measuring production?
Instead of valuing production at market prices (mp), it is possible to value the goods and services at the price received by producers (basic prices (bp))
- To move from BP tp MP:
→ Add indirect taxes (Ti)
→ Subtract subsidies to firms (Zf)
How do you go from domestic to national products?
- domestic products → production within a country (location matters)
- National product → value of goods and services produced anywhere in the world by the residents of a nation (residency matters)
GNP = GDP + Net Receipts of Factor Income (NRFI)
What are net receipts of factor income? (NRFI)
inflos of income obtained from the rest of the world - outflows of income to the rest of the world
- It must be income! (something received in exchange for producing something: wages, rents, interest or dividends)
What are the differences between nominal and real GDP?
- to remove the effect of price changes, we need to measure GDP at constant prices
- Nominal GDP → value of good and services produced during a given year valued at the prices that prevailed in that same year
- REal GDP → value of final goods and servies produced in a given year, when valued at the prices of a reference base year
What id the GDP deflator
- Index that measures the average price level of the economy, taking into account all the goods and services produced within the country
GDP Deflator = ( Nominal GDP / Real GDP) * 100
What are some limitations of GDP?
- It’s an average → doesn’t take into account inequality
- Only measures income, not health or quality of life more generally
- Does not count non-priced production (e.g. doing housework, reading free blogs, volunteering)
- Adds finished goods but not subtract “bads” (e.g. pollution, crime)
- Difficult to compare across countries (need purchasing power parity)
